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Essay / Research Paper Abstract
A 3 page paper answering 4 questions addressing topics including risks, uncertainties, capital leases, capital budgeting, operating leases and circumstances in which one is preferable over another. Bibliography lists 3 sources.
Page Count:
3 pages (~225 words per page)
File: CC6_KSacctCapBudLs.rtf
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Unformatted sample text from the term paper:
that a firm acquires equipment it needs can directly affect its balance sheet, financial position and bottom line. Leasing and buying large, costly items each can have benefit for
the organization. a. What risks and uncertainties should be considered while making a lease vs. buy decision? How do these risks and uncertainties impact capital budgeting?
Payment terms and the pace of technological progress are two considerations that should enter the lease vs. buy decision, as is the expected path of the economy or
organizations industry over what would be the term of the lease. Purchasing usually is easier than leasing, and often the advantages of leasing are offset by the time and
effort required to establish the lease, particularly if the total purchase price is not oppressive (Roch, 2005). For big-ticket items that may have
limited useful life, leasing may be the best route in that leasing spreads out payment for the item and it can easily be replaced if it becomes obsolete prior to
reaching the end of its useful operational life. If interest rates are high then leasing may be more attractive at the beginning, less so when interest rates decline.
The organization may or may not want to report the item as an asset because it also would have to take on the liability
it presents until the organization owns it. A full payout lease "is one in which the present value of the payment stream equals the acquisition cost of the asset"
(Roch, 2005) and allows the organization to have and use equipment without tying up all of the capital that would be required for purchasing the item. b. What is the advantage
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